Donald Graham, the Chairman of the Washington Post Company, has been spending a lot of time on Capitol Hill recently.
But Mr. Graham wasn't pressing for an expanded shield law for his reporters, or even a government bailout of media companies. Instead, Mr. Graham's efforts were aimed at protecting his company's cash cow--it's for-profit education division.
As The Wall Street Journal reports:
[Washington Post Co. Chairman] Donald Graham recently abandoned his hands-off approach to the company's cash cow, making several trips to Capitol Hill to lobby against proposed regulations that threaten earnings at Post Co.'s Kaplan Inc. for-profit-college business.
The U.S. Education Department this summer proposed regulations that would tie access to federal aid programs to graduates' success in paying off loans.
"They aimed at the bad actors and they wound up scoring a direct hit on schools that service low-income students," Mr. Graham said in an interview. "That cannot be what the Obama administration wants."
Best known for its test - preparation programs, Kaplan early this decade branched out to running online and campus-based schools offering bachelor's, graduate and technical degrees. It now owns and operates 75 colleges and graduate schools, including a dozen Kaplan University campuses in four states and Concord Law School online.
Kaplan is one of several for-profit-college operators that have come under fire from government agencies who say the schools are pushing prospective students to take on heavy debt while failing to prepare them for careers that allow the students to pay off the loans.
But government may have different ideas on which schools truly are "bad actors" and those who are simply trying to assist poor students. The Government Accountability Office recently concluded that some for-profit schools engage in fraudulent practices, and most utilize misleading or deceptive marketing practices in recruiting new students.
The GAO investigation covered 15 for-profit institutions located in six states and Washington, D.C. While the schools aren't listed in the report, the descriptions provided ("Arizona; four-year, owned by a publicly-traded company") certainly narrows down the field. A Nightline segment on the same issue suggested the GAO investigation targeted most of of major non-profits, a group that would certainly include Kaplan. The WSJ reports that two Kaplan campuses were among those providing misleading financial aid information to prospective students.
According to the Journal, Kaplan is the nation's fifth-largest for-profit education company, with annual revenues of $1.5 billion. That's less than half the revenue of the Apollo Group (which operates the University of Phoenix), but Kaplan's various schools have a larger enrollment than some of the larger education companies, including DeVry and Career Education, Inc., which runs American InterContinental University.
Why is Kaplan so critical to the Post's bottom line? Consider these numbers: in the two most recent fiscal years, the company's newspaper division lost $365 million, while the Kaplan higher education unit (excluding the test prep unit) registered a profit of $450 million. It's not a stretch to say that Kaplan is keeping the Post company afloat. Not bad for a division that was acquired almost as an after-thought in 1984. And little wonder that the Washington Post Company has now re-branded itself as a "media and education" firm.
Along with others in his industry, Mr. Graham is lobbying against regulations that will limit student loan repayment, impacting the for-profit balance sheet. Under the new rules, which would go into effect later this year, an institution's access to the federal student loan program would be tied to graduates' success in paying off those loans. The revised regulations would also limit annual payments to no more than 8% of a student's income, creating another potential problem for the for-profits.
Federal student aid account for 80% of revenues in Kaplan's higher ed division last year. Current loan repayment rates mean that some Kaplan schools would be ineligible for federal money under the revised guidelines. Little wonder that Mr. Graham has been making the rounds on the Hill.
There is one other curious twist in this saga. Education Secretary Arne Duncan says the new rule are aimed at a "few bad actors" in the industry. According to the GAO report, some Kaplan operations fit that definition. But is the Obama Administration willing to cross swords with its "base"-- a powerful media conglomerate that has been a valuable ally in the President's political career. We're guessing that Mr. Duncan will tread carefully in trying to regulate Mr. Graham's cash cow.
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